BHP’s Balance Sheet Is Strong in Face of Tough Macro Environment
BHP's Fiscal 2015 Results: Is Everything Going According to Plan?
Net debt reduction
BHP Billiton’s (BHP) (BBL) net debt has gone down $1.4 billion to $24.4 billion as of June 30, 2015. The productivity initiatives and reduced capex (capital expenditures) were the main drivers behind this reduction. Rio Tinto’s (RIO) net debt increased to $13.7 billion from $12.5 billion a year ago due to the timing of the Kitimat and Pilbara expenditures. In this article, we’ll look at BHP’s leverage and the strength of its balance sheet.
Leverage
BHP currently has a leverage ratio, or net debt to EBITDA (earning before interest, taxes, depreciation, and amortization), of 1.3x. This compares to 1.2x for Rio Tinto (RIO) and 2.0x for Vale SA (VALE).
BHP has a strong balance sheet with an A+ credit rating from Standard & Poor’s on a negative outlook and an A1 credit rating with Moody’s on a stable outlook. BHP management reiterated its commitment to the solid “A” credit rating.
BHP’s credit rating is strong compared to its peer group, including Rio Tinto (RIO), Vale SA (VALE), and Anglo American (AAUKY).
Its leverage, or net debt/(net debt + Equity), is a comfortable 25.7%. Rio Tinto (RIO) has a lower leverage of ~21%.
BHP’s maturity profile is well balanced with low refinancing risks.
BHP has increased its full-year dividend by 2% to $1.24 per share. The company’s management mentioned during the call that if the current environment persists, BHP can further cut its capex for fiscal 2016 and fiscal 2017 to maintain its progressive dividends.
The iShares MSCI Global Metals & Mining ETF (PICK) provides diversified exposure to the metals and mining sector. Rio Tinto’s listings form 11.53% of PICK’s holdings. The SPDR S&P Metals and Mining ETF (XME) also invests in some of these stocks.
In the next part, we’ll see BHP’s valuation compared to its peers.
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